Samsung profits fell in fourth quarter 2013

Samsung profits fell in the fourth quarter of 2013, the world’s largest mobile phone and TV maker reported.

The company made a net profit of 7.3 trillion won ($6.8 billion), 11% less than in Q3 2013 – the first quarterly profit fall in two years.

Samsung Electronics Co., Ltd (Samsung) said its earnings were affected by a reduction in margins in its mobile telephone division, which reported an operating income drop of 18% in Q4 2013 compared to Q3 2013. Earnings were also affected by currency fluctuations and a special bonus payment.

A special bonus payment costing 800 billion won was given to Samsung workers to celebrate the 20th anniversary of the management strategy of Chairman Lee Kun Hee. Lee is credited to have spurred the company’s growth.

In its Earnings Release Q4 2013, Samsung said that during this first quarter of 2014 it is doubtful profits will improve as weak demand at this time of year “”will put pressure on demand for components and TV products”.

C|Net quoted Hyunjoon Kim, an executive in Samsung’s mobile business, who said in a conference call with analysts “This year, looking at the industry environment, we do expect that the industry will become a bit more difficult with growth slowing down and competition becoming more fierce.”

Competition closing in on Samsung

Samsung’s smartphone division has been amazingly successful over the last few years, eventually helping the company displace Nokia as the world’s number one telephone maker in 2012.

However, since then a growing number of competitors have appeared with new models that have caught people’s attention. Apple came in with its new iPhones, while Nokia introduced two new models in September 2014 (Nokia’s telephone division now belongs to Microsoft). HTC, based in Taiwan, introduced the One Max, an Android-powered handset last October.

All these new models coming into the market during the last quarter of 2013 had a negative impact on Samsung’s sales.

Samsung warns that such competition can only become fiercer in 2014. In order to gain market share, the company says it may look into reducing its prices, which will hit margins.

The company added that it expects the second half of 2014 to show a steep increase in sales of smartphones and tablets. However, whether this occurs depends on what its competitors do.

New products appearing in 2014

Apple is expected to introduce two new iPhones with larger screens by the summer of 2014. The two companies have long been competitors for the high end of the market, but Apple has never sold phablets (smartphone/tablet hybrids), something Samsung has marketed well.

Samsung also has some new products in the pipeline. In either March or April this year it is expected to launch the new Galaxy S5, said to be a giant leap forward from the Galaxy S4. The company is also pushing its tablets and aiming for more wearable gadgets.

2013 a record year for Samsung

Although Q4 2013 was disappointing, 2013 was a record year for Samsung, with a net profit of 30.5 trillion won ($28 billion), a 28% increase on 2012.

One in every three smartphones sold in 2013 was a Samsung product. The company shipped more than 300 million devices in 12 months.

According to Counterpoint Technology Market Research, Samsung is set to deliver 400 million units this year, an increase of more than 20% over 2013.

The Washington Post quotes Thomas Kang, a director at Counterpoint, who says that Samsung’s smartphone sales will not increase much in North America or Western Europe. Most of its growth will come from India, Eastern Europe and Africa, where the handsets are sold at a much lower price.

Apple’s success is Samsung’s success

Samsung is in the unique position of both competing against Apple and also being its major supplier of essential parts.

In the marketplace the two companies may battle fiercely for customers, in the courts they fight over patents, but when Apple sells iPhones Samsung makes money.

Samsung provides Apple with the application processor in the iPhone 5S, one of its most expensive components and the brains of Apple’s flagship phone.